3. The main developments in tariffs in 1994

There were several noteworthy developments in the area of tariffs in 1994:

• tariff reforms for the telephone service were implemented on 15 January 1994;
• in the area of leased lines, emphasis was put both on developing an understanding of costs by carrying out an audit, which made it possible to approve tariffs for 1995, and on consulting players in the sector.

3.1. The tariff reform of 15 January 1994

3.1.1. The content of the reform and the reasons behind it

The tariff reform for the telephone service, which was implemented on 15 January 1994, was included in the first contractual plan between the Government and France Télécom, and was approved during the interministerial committee for regional development meeting (Comité Interministériel d'Aménagement du Territoire) held in Mende (Lozère) on 12 July 1993. It is unprecedented in France for its scope and for the innovations which it has introduced in tariff geography.

The last ten years have increasingly shown the need for such a move. The goals included:

• enabling users to benefit from the reduced telephone costs which are due largely to technical progress, particularly digitalisation of the network;
• making preparations for the development of competition, which by 1998 will involve services and infrastructure, that is, to rebalance telephone tariffs while maintaining access for all to telephone service by taking ad hoc measures;
• modernising tariff geography so that it corresponds as much as possible to socio-economic realities, and thus to the needs of users;
• promoting regional development, mainly by reducing long-distance call charges and by creating Extended Local Zones (ZLEs).

The reform of 15 January 1994 included the following measures:

• the consolidation of the subscription charge at FFr 45, including taxes, i.e., an average increase of 35%;
• the change in tariff impulse frequency for local calls from 6 minutes to 3 minutes in the "red" (peak rate) period, i.e., an average increase of 30%;
• the change in the tariff impulse frequency for long-distance calls from 17 seconds to 19 seconds in the "red" (peak rate) period, i.e., an average reduction of 10%;
• the implementation of a policy for residential users with low telephone use so as to limit the impact of the subscription rate increase for these subscribers;
• the setting up of Extended Local Zones, which has led, first and foremost, to the elimination of the boundary effect, and second, to a reduction in charges for certain types of calls; ( thus, for calls of less than 100 km now charged at local rates, the tariff impulse frequency changes from 45 seconds to three minutes)

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• the expansion of access to the regional administrative centre at local rates, which is now possible for 90% of subscribers (previously 50%); the 10% who do not have this possibility can nonetheless access public services situated in the administrative centre at local rates.

3.1.2. The results of the reform: reduction of telephone charges and improvement in tariff geography

First of all, the reform led to an average fall of 3.4% in telephone charges:

This assessment was made by estimating the average monthly bill for a subscription in metropolitan France — measured over the period from February to July 1994 — at the rates applicable before and after the reform.

The following table gives the results of this assessment:

Structure and changes in the average bill in 1994 (percentage)

(1993 base = 100)

	before 15 January 1994	after 15 January 1994
Subscription Local call Call of <100 km Long-distance call International call Others Communications	12.3 14.3 19.7 36.3 12.1 8.7	16.0 17.9 13.9 32.2 11.3 8.7
TOTAL	103.5	100.0

These results, however, differ with the type of user:

• for businesses, the reform resulted in a fall of about 6.6% in the average bill. Small and medium-sized enterprises, which often have a local catchment area, were compensated for the increase in the local call charges by the increase in the number of subscribers accessible at local rates due to the Extended Local Zones;
• for residential users, the reform resulted in an increase of about 0.3% in their average bill.

Finally, the reform resulted in a significant improvement in tariff geography, due to:

• the increase in the number of subscribers accessible at local rates: today, this number is on average 440,000, i.e., larger by a factor of seven. In addition, no ZLE has a size of less than 150,000 subscribers;
• the introduction of a greater equality between users: the development of the ZLE has brought dramatic benefits to rural areas and has reduced the differences in size between local zones.

Finally, the scope and complexity of the reform provoked reactions which brought to light an uneven awareness of telephone rates. A study conducted at the request of the DGPT by the Ernst & Young firm showed that many people were unaware of the basic principles of telephone rates and could only give a vague estimate, generally unrealistic, of call charges.

Thus, one of the unexpected benefits of the reform was that it has helped inform users about the structure of their telephone use and expenses. The best proof of this phenomena is the change in user behaviour: after an initial attitude of rejection, reflected in a reduction in the volume of calls, consumers have now rationalised use by profiting from the advantageous features of the reform.

3.1.3. Questions have, however, arisen and need to be taken into account

A certain number of questions have arisen concerning:

• the impact of the reform on low-income residential users;
• the cost of the telephone;
• tariff geography.

Access for all to telephone service is one of the concerns of the DGPT. In this regard, two kinds of measures have been envisaged:

• the first type is actually a continuation of current measures aimed at low-use subscribers;
• the second type involves individual aid: this could be, for example, a priori intervention in the form of "telephone vouchers", or a posteriori by helping users who are having difficulty making their payments.

Modifying the tariff system could involve setting up differentiated tariffs that would make the current system more flexible and better adapted to the actual usage habits of consumers. Nonetheless, any such measures need to be in line with the principles of cost-oriented tariffs, of fair competition and of non-discrimination, and they must be compatible with maintaining a clear, understandable tariff structure.

Two new types of needs have become apparent in tariff geography:

• one involves the local dimension of tariffs, and is related to the size of the ZLE and access to the regional administrative centre;
• the other involves access to the main urban centres and is more relevant to tariffs for < 100 km calls.

A vision of tariff geography

As was emphasized by a study done by the IDATE for the DGPT, the future outlook for the development of telephone service tariff geography will need to take into account three basic dynamics:

• technical progress, which will call into question the use of the distance parameter in determining telephone call charges;
• territory, which in the last few years has changed from a notion of hierarchical, contained territories dominated by an urban centre to a geography of flows and networks, where relations between centres count for more than the relation of each centre to its surrounding area;
• the opening of the telecommunications sector to competition, which will lead to a segmentation of tariffs, not only in terms of geographic criteria, but, even more so, in terms of types of consmers, hourly time slots, flat-rate subscriptions, etc.

It is also undoubtedly necessary to improve the way in which changes in tariffs are implemented, in order to:

• help users clearly understand the basic tariff guidelines for the coming two or three years;
• see to it that changes in tariffs are progressive;
• ensure a high-quality communications policy.

3.2. Leased lines

Chapter VII